Under Fire: Independence of KPMG from IT Services Firm
An Indian IT services company has received a voluntary document from the enforcement division of the US Securities and Exchange Commission requesting the firm to prove the independence of its auditors KPMG India Pvt. Ltd.
In a regulatory filing with the SEC dated April 20, Wipro Limited said it is complying with the regulator’s request but that the result of the review on KPMG’s independence remains uncertain.
The SEC may ask the IT services firm to hire new auditors and have its financial statements for one or more years re-audited if the SEC’s conclusions differ from that of KPMG’s and the firm’s audit committee’s, Wipro said in the filing.
The SEC’s notice followed a $4 million fraud within the New York-listed IT services firm that it revealed on February 2010, saying one of its employees may have been involved. Wipro then requested for more time to file its financial statement for the fiscal year ended March 31, 2010.
Wipro said in its filing that an internal investigation found that the employee in question had engaged in “a number of personal financial transactions, of relatively small value, with a junior member of KPMG India’s audit team assigned to the Wipro audit engagement” at the time.
KPMG India, however, insisted that its independence with respect to the IT services firm remained intact.
“KPMG India subsequently determined that neither the audit engagement team member or any other member of the KPMG India audit team assigned to the Wipro audit engagement were involved in the acts of embezzlement,” Wipro said in the filing.
The IT services company added that its audit panel concurred with KPMG India’s conclusion based on the results of KMPG India’s investigation and discussions with external advisers.
The audit panel concluded that no member of Wipro’s management was engaged in “intentional wrongful conduct.”
Wipro said that during the period from January 2008 through December 2009 its audit panel found certain accounting entries that were “either erroneous, unsupported by documentation, or both,” which were corrected on March 31, 2010.
These accounting errors along with other uncorrected audit adjustments had no material impact on its consolidated results for the years to March 2009 and March 2010, Wipro said.
Wipro pointed to lack of internal controls as the cause of the embezzlement and financial misstatements, adding that proper steps were already taken as of March 31, 2010 to address the weaknesses.
The accused employee, who committed suicide, was working in the controllership division within the finance department that keeps the financial books of the IT services firm and authorizes payments whenever required.